Investors forced to dump purchases

By Vivienne Kelly

Posted on Friday, 07 October 2016

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Local and international investors who bought off-the-plan properties are increasingly having to walk away from their purchases and ditch their deposits — so is this a sign that the best days of this cycle are over?

The anecdotal evidence of the increase comes from Aofun.com.au, which contends there are a growing number of buyers who may have difficulty settling on their off-the-plan property purchases.

Aofun founder and CEO Jason Zhu noted many of these potential sellers are overseas investors who have been “caught out” by the major Australian banks’ decision to freeze lending to foreign investors.

“Many of these potential sellers would have bought an off-the-plan property in the past few years and now find the settlement date looming while they have little or no chance of securing finance,” he said.

“The reality facing the market is that many of the overseas buyers of these properties, for various reasons, are not going to be able to complete their purchases, leading to an oversupply that will inevitably place a sizeable burden on the property and construction industries.”

The most recent figures from CoreLogic indicate that over the coming 12 months, there are approximately 92,000 units due for settlement. If the timeframe is extended to 24 months, the number increases to 231,129.

In addition, in the 12 months between April 2015 and March 2016, 96,185 units were contracted to be sold, but Aofun notes this was before the crackdown on lending by Australian banks began in earnest. It’s also becoming increasingly difficult for overseas investors, particularly mainland Chinese buyers, to get money out of their country to finalise the purchase of these properties due to new restrictions on transferring money out of China.

The ultimate result, according to Mr Zhu, could be the “property equivalent of the GFC”.

“Many overseas buyers either can’t get money out of their countries or won’t be able to get finance in Australia. Although there may be alternative forms of credit available, they come at a price, and many of these overseas buyers would rather cut their losses than risk further financial consequences.”

The switch in market dynamics, however, could provide an opportunity for astute property investors who may be able to pick up a bargain.

“In some cases, astute investors will be able to pick up a bargain where the seller may be willing to forgo the full 10 per cent deposit plus more. In particular, there is a real opportunity for first home buyers who may not have sufficient savings for their first home to register on the website and acquire their first home with the deposit paid,” he said.

In a majority of cases, the original buyers would have paid, on average, a 10 per cent deposit. There will be circumstances in which they will be willing to sell below the original contract amount, Mr Zhu said — particularly if they are international investors — in order to avoid lawsuits from the property developer and receiving a bad credit rating. These factors combined would have “negative implications for any future application to Australia or investment in Australia,” Mr Zhu said.

The Nominee Sale Platform on Aofun.com.au was created as a direct response to the number of buyers who will have difficulties settling on their off-the-plan property purchases. The online portal aims to provide a solution in the form of an open-market platform that will allow the distressed sellers to reach out to a wide network of new property buyers.

“The Nominee Sale Platform on Aofun.com.au is designed to provide an open and transparent market place where sellers and buyers can trade freely,” Mr Zhu said.

The platform will also give property developers another vehicle to on-sell their properties when the original buyers cannot settle, Mr Zhu said.